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Charity Work

Charities are big business in America. Community foundations alone had assets of more than $21 billion in 1997, a 24 percent increase from the previous year, according to the Columbus Foundation. And Americans also held more than $60.5 billion in charitable remainder trusts during 1997, more than double the amount held three years earlier, according to the Internal Revenue Service.Enter the registered

Charities are big business in America. Community foundations alone had assets of more than $21 billion in 1997, a 24 percent increase from the previous year, according to the Columbus Foundation. And Americans also held more than $60.5 billion in charitable remainder trusts during 1997, more than double the amount held three years earlier, according to the Internal Revenue Service.

Enter the registered representative.

Business is booming as financial professionals help nonprofit organizations manage their money and collect even more donations. However, there are special considerations when working with these clients, including more diverse service needs and more complex constituencies.

"We find that the needs of most charitable organizations are similar, but never exactly the same," says Lee Bryan of Deutsche Banc Alex. Brown in Winston-Salem, N.C. "So it really does take someone who understands the nuances of the trade to provide competent advice."

In general, foundations and charities are conservative growth-and-income investors, Bryan says. The typical client has 60 percent of assets in equities (diversified among several classes) and 40 percent in conservative fixed-income products, he says.

Achieving blockbuster investment performance is not always the organization's priority, adds Jim Pupillo of Salomon Smith Barney in Scottsdale, Ariz. "Don't go in there and try to sell a money manager because he's better performing than the one they have--that's not their issue," he says. "Identify what their issues are and how you can solve problems for them."

Risk is also a universal concern, Pupillo says. "Everybody in a foundation or endowment is concerned with risk exposure, particularly since most of them are volunteers, yet they have a fiduciary role to oversee this money," he says.

Leon Spheeris of Dain Rauscher in Brookfield, Wis., agrees. "The bottom line is that it's not their money, but it is serious dollars," he says. "You won't sell the account on performance, but you will sell it on service and trust."

Read how these producers get the job done.

Not an Overnight Success--Lee Bryan, Deutsche Banc Alex. Brown, Winston-Salem, N.C. Lee Bryan can't remember if his relationships with high-net-worth clients led him to nonprofit organizations or vice versa. Either way, the organizations and their benefactors have become his specialty over the past 15 years. Bryan now works with 75 nonprofit groups in North Carolina, South Carolina and Tennessee. Clients include hospital foundations and university endowments, with assets ranging from $1 million to $100 million.

Bryan offers "the standard array of services a consultant would provide," such as a review of investment guidelines and objectives, asset allocation studies, money manager recommendations and ongoing due diligence. Generally, nonprofit clients pay a fee based on assets for his services. "We provide a comprehensive report on those investments and meet with the foundation's finance committees on a quarterly basis," he says.

The mission: improve investment performance and reduce the amount the client spends managing assets. "Most importantly, we want to take those savings and the improved performance directly to the bottom line," Bryan says.

But his role doesn't stop there. He organizes meetings and luncheons for potential donors, bringing in money managers or economists to address broad financial topics. "And we have arranged a number of one-on-one meetings with potential major donors to explain exactly how the money is managed in that foundation," Bryan adds. "It gives them some confidence before they ever write a check."

Over the years, Bryan has worked his way into the business by building relationships with CPAs and tax attorneys in the nonprofit community. He learned about pricing and other competitive issues the hard way--by competing against larger consulting firms for business, he says.

Bryan also relies on Deutsche Banc Alex. Brown resources to help. A team of due diligence specialists in Baltimore gathers intelligence about hospital foundations and shares that information with the firm's producers, he says. "What our in-house staff has learned from someone in the Northeast can be as applicable to a hospital here in North Carolina," Bryan says.

One warning: It can take an entire year from the time a request for proposals is issued until a contract is signed.

"It's not an overnight way to grow your business," Bryan says, "or even add to your business."

A Converging--Client Base, Jim Pupillo, Salomon Smith Barney, Scottsdale, Ariz. About seven years ago, one of Jim Pupillo's clients invited him to a fund-raiser for the Make-a-Wish Foundation. The client's wife was chair of the event, and Pupillo attended as a potential donor.

At the time, Pupillo was busy building an ERISA business, setting up retirement plans for local business owners. But as he sat at the fund-raiser, chatting with an accountant already working with nonprofit groups, Pupillo realized something about his client base.

"My focus on ERISA started to bring in high-net-worth individuals," Pupillo says. "I started getting the owners and treasurers of these businesses as clients with their personal money as well. And some of these high-net-worth individuals were also on the boards of nonprofit organizations."

Today, roughly 35 percent of Pupillo's business is from nonprofit organizations--about 25 church foundations, nonprofit retirement plans and groups such as the Children's Action Alliance and Women's Club of Phoenix. Assets range from $800,000 to $50 million. The remainder of his business is with ERISA clients and high-net-worth individuals. "There's a lot of cross-pollination there," Pupillo says. "I have their retirement plan, their personal money and they also sit on a nonprofit board."

Increasingly, affluent clients are seeking strategies such as charitable remainder trusts to give something back to their communities, Pupillo says. But they insist on knowing that their money is managed properly. "If I'm donating a million dollars to an endowment, I want to know that million dollars is going to be guarded with some stewardship," Pupillo says.

Using Pupillo's services, nonprofit groups can demonstrate their commitment to "stewardship" by establishing investment and asset allocation policies, selecting outside money managers, and measuring investment performance against a customized index. The custom index is crucial because it measures the group's investment against its objective, such as building a church in five years, rather than some arbitrary yardstick, he says.

Pupillo also helps charities establish spending policies. "If they had a windfall last year and base their spending on that income level, they could be overspending," he says. "So we'll suggest using a rolling three-year or five-year time span to come up with an average spending policy."

Brokers who want information about working with nonprofit organizations should contact the Institute for Certified Investment Management Consultants (see "Resources," Page 64), Pupillo recommends. "That's probably my best resource for learning about endowments and foundations," he says. Pupillo is a past president of the organization. And the education is worthwhile. "When you hear about some of the accomplishments of these groups, the children they've rescued ... it almost brings tears to your eyes."

A Professor of Social Capital--Joel Davis, American Express Financial Advisors, Augusta, Maine You could call Joel Davis a professor of social capital. His students are affluent individuals as well as staff at nonprofit organizations. The curriculum is "enhancing the donor's financial situation" by reducing taxes via planned giving such as charitable remainder trusts, wealth replacement trusts, split-interest gifts and charitable gift annuities.

Davis trains about 50 nonprofit organizations in Maine, helping them build better relationships with potential donors. He publishes newsletters and pamphlets aimed at donors, conducts tax seminars and evaluates a group's market research procedures. He also helps create campaigns for these organizations to develop "top-of-mind awareness" among potential donors.

For example, Davis conducts planned giving seminars during alumni weekend at Bowdoin College in Brunswick, Maine. "The reason they ask me to do this is that I'm an independent financial adviser," he says. He brings objectivity to the presentations, something he calls OPC (other people's credibility). In other words, the sales pitch is coming from an outsider, someone who is at least somewhat impartial, he says.

After the seminar, six development directors at Bowdoin meet with alumni interested in donating. The approach is social capital--encouraging philanthropy by reducing taxes, Davis says.

"These people might have millions of dollars, but they want to figure out a clever way to get some of this money to their kids, instead of handing it over to the government," Davis says. "They don't mind sharing some of that capital, but the one thing they want is control--some influence over where it goes."

Larger hospitals and colleges usually have full-time professionals on staff to conduct these seminars, but the smaller ones often rely on consultants, Davis says. As a former board member of the Maine Association of Nonprofits, he maintains relationships with a good number of the group's 300 to 400 members. And every year he conducts workshops for many of the members. "In addition, I often end up providing other services for these organizations, such as administering and managing donor trusts, with assets of $50,000 to $100,000," he says.

Davis suggests brokers interested in the nonprofit business build their consultative skills by contacting training groups such as The Legacy Companies in Boston (888/689-4591) or Renaissance Inc. (317/843-5400).

"I've done dozens and dozens of these types of planned gifts. Invariably, the clients are thrilled after they've done this. They tell all their friends. They're ecstatic," Davis says. "It's very rewarding."

A Certified Consultant--Leon Spheeris, Dain Rauscher, Brookfield, Wis. If dealing with boards and committees makes your blood pressure rise, the nonprofit niche may not be good for your health, says consultant Leon Spheeris.

"When you do a proposal, whether it's your initial proposal, annual meeting, or recommendation about changing money managers, you have to make nine to 12 copies of all your materials--all in color," Spheeris says. Imagine the hassles if you have a bunch of these clients.

Perhaps for his health, Spheeris has just a handful of nonprofit clients, such as a statewide church organization and a religious order, with assets ranging from $5 million to $25 million. But those assets come with strings attached, he warns.

"You've got a board of very powerful, successful people with huge egos, so the meetings can be difficult at times," Spheeris says. "They all have the same objective. They really are looking out for the best interest of the organization, but they all have different opinions on how to go about that."

Still, Spheeris says he would like to do more work with nonprofits with assets in the $1 million to $25 million range. Why? "Because within that group, there's a real need," he says. "Some do not have good policy statements, good spending or investment policies. Or, if they have them, they're not following them." And with groups any larger, the competition from national consulting firms becomes too intense, he says.

Nonprofit organizations' loyalty also makes them good customers, Spheeris says. "They're not easy accounts to get, but once you get them they're not fast to move." And there's a steady stream of work since a nonprofit's account needs frequent rebalancing as money comes in and distributions go out, he says.

However, Spheeris warns against entering this niche blithely. "For an average broker on the Street, a $5 million or $10 million account is a real rarity," he says. "So it's very attractive. But I'm not convinced that without some specialized training in investment policies, spending policies and dealing with committees that the average producer is qualified to handle it."

Spheeris holds the Certified Investment Management Consultant designation from the Institute for Certified Investment Management Consultants. He is a past president of the group. He also recommends the Certified Investment Management Analyst designation from the Investment Management Consultants Association (see "Resources," Page 64).

Once involved, there's personal satisfaction in working with charities. "It's more fun than helping a rich person get richer," Spheeris says. "You get paid well, and you're doing something that is meaningful."

Given the vast opportunities, why isn't every financial adviser in the world jumping on the nonprofit bandwagon?

"It's a very difficult market to crack," says Keith Gregg, president of Montauk Affinity Marketing Corp. in Glen Allen, Va. "If you're coming from another industry you're viewed as a foreign entity. So you need to be part of them."

Gregg recommends joining the National Committee on Planned Giving and the National Society of Fund-Raising Executives (see "Resources," Page 64). "Don't go into this business without being knowledgeable of the business," he says. Gregg is the author of "Do Well By Doing Good: The Complete Guide to Charitable Remainder Trusts." His clients include the Children's Wish Foundation, American Kidney Fund and Statue of Liberty-Ellis Island Foundation.

Deadra August, a consultant with Merrill Lynch's Nonprofit Financial Services Group in New York, says there are at least four hurdles you'll face as you approach nonprofit organizations:

The misperception: "When we look at the vast need these organizations have for more funding, they appear to be struggling," August says. That's a turnoff for most advisers. "Yet in reality, these organizations have large assets."

The trust factor: Nonprofits don't trust outsiders. But because August has a long history of philanthropic work, including a family foundation, personal volunteer experience and service on Canada's mental health commission, referrals are plentiful. "After the referral, the relationship has already started," she says. "They already know my background." One of her clients is the Magic Johnson Foundation.

The contract cycles: Most nonprofits already have a financial adviser, August says. "They may have hired a person who is managing their money, so you have to stick with them through that commitment, which usually runs for three to five years."

The firm's reluctance: "To walk into a brokerage firm and say 'I want to spend at least 50 percent of my time working with struggling organizations,' is difficult," August admits. You'll likely have to pay all your own expenses in targeting nonprofits, and you'll need another source of business in the meantime.

These groups provide certification, training, networking opportunities and other resources that might come in handy if you're working with charitable organizations.

American Association of Fund-Raising Counsel New York An association of consulting firms that work with charities and nonprofits. 212/481-6705 or California State University at Long Beach Long Beach, Calif.

Offers a Certified Specialist in Planned Giving program. 562/985-8466 or

Council on Foundations Washington, D.C. Membership includes 1,800 grant-making organizations, including community and family foundations. 202/466-6512 or

Institute for Certified Investment Management Consultants Washington, D.C. Offers the Certified Investment Management Consultant (CIMC) designation. 202/452-8670 or

Investment Management Consultants Association Denver Offers the Certified Investment Management Analyst (CIMA) designation. 303/770-3377 or

National Association of College and University Business Officers Washington, D.C. A professional organization that tracks university endowments and represents chief administrative and financial officers at more than 2,100 colleges and universities across the country. 202/861-2560 or

National Association of Philanthropic Planners San Antonio Offers a national conference for financial advisers who want to work with individuals and charities in the area of philanthropic planning. 800/342-6215 or

National Committee on Planned Giving Indianapolis A federation of local planned giving councils. Offers training and networking opportunities for professionals who sell and administer charitable planned gifts. 317/269-6274 or

National Society of Fund-Raising Executives Alexandria, Va. Offers several certification programs for professional fund-raising executives. 703/684-0410 or

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